IG Markets - Morning Thoughts
IG Markets - Morning Thoughts
US sales figures were front and centre last night, with core retail sales (excluding automobiles) and retail sales (including cars) hitting the newswires before the US market opened.
The figures were nothing short of spectacular, doubling what most analysts had expected, at 1.0% and 1.1% respectively. This jump in retail sales figures is the biggest gain in five months. They are also a prime illustrator of how the US economy is tracking. With retails sales up so strongly, it shows Americans believe job prospects and security is stabilising; US consumers are not daunted by the recent increases in taxes and petrol prices; and they are not concerned by the automatically installed sequestration two weeks ago.
This optimism was also seen last week with a report into household wealth showing it is now back at five and a half year highs and almost back to pre-GFC levels.
All US indices rose on this data, taking the Dow to its seventh consecutive record high, and its ninth consecutive northward move - its longest winning streak since 1996. At the close the Dow finished at 14455. The S&P snapped back after ending lower on Tuesday night, up three points to 1555, and is back within striking distance of its all-time high.
It’s a pity that the euphoria in the US is not mirrored here in Australia. The US has been in a bull market since March 2009. Australia is three years late to the party, starting its bull run in April last year. It has grabbed the bull by the horns, rallying hard in current conditions, but the question is for how long?
To give you an idea of length and strength of the bull market in the US, analyst Jeffrey Kleintop has this to say in his note on Tuesday: ‘this is the seventh bull market to last four years since World War II… Four of those previous rallies ran for five years or more, and the fifth year produced a 22 per cent average gain.” Let’s hope Australia can replicate this US lead. You also know you’re in a bull market when corrections are corrected in days not weeks, and dip pick-ups are strong and supportive. A correction of 5% to 7% is on its way, however it won’t last very long as investors snap up ‘cheap’ entry points.
Moving to regional markets, yesterday Japan was in focus with the Democratic Party of Japan (DPJ) putting the brakes on the yen’s depreciation by rejecting Prime Minister Abe’s deputy nominee Mr Kikuo Iwata (an advocate for even greater stimulus). This news saw USD/JPY lose ground, along with EUR/JPY and AUD/JPY. With the Nikkei/yen correlation well intact, the Nikkei lost 0.51% in yesterday’s trade; today we expect this to reverse. Two small opposition parties outside of the DPJ said they will support Mr Iwata’s nomination, and he now looks set to take up the position. USD/JPY clawed back all losses from yesterday’s trade on this news and is back above ¥96 to ¥96.12. Watch for the Nikkei to lead Asian markets today.
Today is all about Australian data with the release of the official unemployment rate and the employment change. It is the latter that will be more important under current circumstances, as last month’s fall in unemployment rate was due to 20,200 part-time roles being filled, while 5500 full-time jobs were lost. If the markets, consumer sentiment and spending, housing approvals and business confidence is to continue to improve in Australia, job security is paramount. Full-time employment is key to this happening.
Moving to the open, we are calling the ASX 200 up 13 points to 5104 (+0.25%). With commodity prices falling overnight along with the global miners over in London, support for this call has to come from defensives that were sold off yesterday. Yesterday was one of the worst days collectively for financial stocks this year, and a strong dip pick today would not be surprising.
What is interesting is that BHP’s ADR is suggesting the stock is set to lose another 34 cents to $35.54 (-0.95%). Materials are absolutely friendless at the moment with investors just not interested due to China fears. As a contrarian, this is bound to reverse in the second half of the year. It is unprecedented that Australian material plays lag a bull rally; this will reverse in the medium term. Be ready for it; it isn’t going to happen in the short term, however come the second-half of the year ,watch this space.
Market Price at 8:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 1.0299 -0.0011 -0.11%
ASX (cash) 5104 13 0.25%
US DOW (cash) 14466 23 0.16%
US S&P (cash) 1554.7 4.4 0.28%
UK FTSE (cash) 6481 1 0.01%
German DAX (cash) 7986 18 0.22%
Japan 225 (cash) 12340 66 0.54%
Rio Tinto Plc (London) 33.77 -0.70 -2.02%
BHP Billiton Plc (London) 21.07 -0.28 -1.30%
BHP Billiton Ltd. ADR (US) (AUD) 35.54 -0.34 -0.95%
US Light Crude Oil (April) 92.49 -0.23 -0.25%
Gold (spot) 1587.35 -5.4 -0.34%
Aluminium (London) 1971 -18 -0.91%
Copper (London) 7791 -39 -0.50%
Nickel (London) 16967 -117 -0.68%
Zinc (London) 2249 9 0.40%
Iron Ore 139.00 -4.4 -3.07%
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